Creators, Communities, and Crypto

6.17.2020 | Fred Ehrsam

Digital creators have exploded. They are increasingly looking for ways to grow, engage, and monetize their followings.

Internet-native communities have also exploded. reddit’s communities have gone from obscure to mainstream. Both the impact and censorship of online communities have reached the highest levels of public discourse – economically, politically, and socially.

As a result, creators and communities are looking for new ways to do things. Crypto may be the main source of solutions and innovation for both groups over the coming years.

I sat down with Blake Robbins, student of the new wave of content creators and e-sports and partner at Ludlow Ventures, and Jesse Walden, long time thinker at the intersection of internet communities and crypto and founder of Variant, to discuss how crypto can enable creators and communities to do things they may never have expected. Condensed transcript below.

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Fred: Hey guys. Glad we finally found time to talk about some of our favorite topics: digital creators, internet communities, and how crypto will change the game for both.

Let’s start on the creator side. Blake, you wrote a good blog post a couple of weeks ago describing the current landscape of business models (non-crypto) for creators. Which models are working today?

Blake: The biggest model today is advertising. YouTube is the only one that’s really nailed the advertising for these creators. Surprisingly, Facebook has not even come close. Then there’s brand deals. This is especially interesting in the case of TikTok, where TikTok is positioning to bring these brand deals to creators themselves. For example, TikTok brought Chipotle to (Vlogger) David Dobrikand were like, “hey, let’s do a brand deal on here”. The result was a viral TikTok template where people created their own videos that garnered over 2 billion views. There’s affiliate revenue (e.g. Amazon links). Then there’s subscriptions, like on Twitch, and the accompanying donations from these platforms. And then there’s merch.

One area that I think is unexplored and relevant to this conversation is digital merch. What does digital merch look like? Not your avatar wearing a digital shirt. Rather: a badge saying you found this person early. Being able to flex to your friends that you found an artist or a content creator before everyone else – and you can actually prove that through your badge. It’s like the idea behind tour merch – it means you were there early and a real fan. What is the digital equivalent of that?

Jesse: I think that last category is very fertile ground and we’ll see tons of experiments there. We’ve seen it in crypto: the social measuring contest is when you bought your first Bitcoin. Everyone wants to stake their claim.

A crypto company called Foundation is getting at this. The idea is: you tokenize (create crypto-based tokens representing) creative products of any kind. The platform lets you buy, sell or redeem a token. The result is a liquid marketplace from day one. Both the creator and their fans can benefit from being early in the marketplace or benefit from the secondary market appreciation. It’s one interesting experiment sort of along the lines of what you’re describing, where this token is merch. It’s a signifier of being early. And there’s also a financial component to it.

Fred: Imagine Yeezy drops being done this way. As we’ve seen with the Chinese versions of sneaker marketplace StockX like Poizon and DoNew, most of the activity comes from people trading the shoes synthetically. Roughly 80% of the sneaker trading volume comes from people who never even take delivery of the shoes or wear them. And it’s a big market: Poizon does over $2 billion a year in volume.

Blake: Interestingly, the initial pitch for StockX was that you were never even going to get your physical shoes. An investor friend of mine who saw that pitch was basically like, “I know the new Yeezys are coming out, I know they’re going to go up in price, just let me buy shares in it.”

Jesse: The (crypto) ICO boom in 2017 proved this too. People were speculating on ideas rather than delivery of real products.

Uniswap, a crypto company that you guys [Paradigm] invested in, ran exactly this experiment for fun. They created a bunch of physical socks (“Unisocks”) and tokenized them. The crypto tokens are redeemable for the socks and trade on the open crypto market. The socks were launched at $14. They’re now trading for $160 each. So far only 30% of the tokens have been redeemed for the physical socks. There’s been about $130,000 in trading volume on 500 pairs of Unisocks. So about 70% of the volume is speculation vs people “actually buying” the socks. And half the trades are people trading fractional pairs of socks!

Fred: It seems like there are two components: financial and social. How important are each of those and which will take off first?

Blake: I think it’s almost all social. For most fans it’s really about the flex: “I was the first person to be a fan” or “I’m the biggest fan”, and that can be shown in a bunch of different ways. Maybe you get a new badge or achievement when you donate more than $500 to that person. That’s a real flex. They’re clearly a super fan. The social side of it exists because people just want validation. This is how it works on Twitch with subscribers and donations today. This becomes cool because this idea can apply to the broader Internet. Maybe you’ve bought $1,000 worth of stuff from Adidas. Badges that represent who you are and your purchasing history. It feels like something that is largely unexplored right now on the Internet.

Jesse: That makes sense to me. I want to believe that the economic incentives are powerful too. Once given the opportunity to participate economically, it’ll be sort of a zero to one moment where suddenly, the latent demand to participate financially is exposed and everyone wants to do it.

We saw the financial angle work in the crypto ICO boom. My hypothesis is that given the right tools the financial angle will work in less technical communities too. Platforms can capitalize on this. But I agree: it’s not widely understood and there haven’t been enough experiments to prove it.

Fred: I can’t help but wonder if we’ve seen this movie before in other categories like Bitcoin and the art market. Both started as a community of people who thought an ideology or a work was cool. Those communities grew dramatically, and as they grew, they added the financial elements.

Bitcoin started as a small and obscure community of people who just thought the idea of digital currency was cool. Obviously Bitcoin was inherently financial in some sense, but it was mostly a social community first – a cypherpunk email list – and then the financial element developed as the phenomeon grew.

The same thing is true of modern art or art broadly. In the beginning, some artists create art and generally don’t care about money. They probably care about social status. And then there are the people who buy the work at the beginning because they think it’s cool. But before you know it, you have hedge fund managers buying art through highly opaque markets and auction systems like Sotheby’s for tens or hundreds of millions of dollars.

And then the funny thing is the financial element becomes a social element: a status symbol. It’s what we see in the Hypebeast culture. Is it really about the design of the shoes? Or is it about the fact that you have this ultra rare pair of shoes that’s worth $10,000? Whole brands like Supreme and modern artists like Jeff Koons just go straight to this meta dynamic as the “art” itself. The social and financial elements start to interact and turn back on one another.

Jesse: Right. Should we talk specifically about the idea of personal, tradable shares for a person?

People are running early experiments of this in crypto. The first person I’m aware of to tokenize themselves a web designer named Dapp Boi. His tokens were redeemable for an hour of his time. And you could speculate on the future value of his time as a designer. So you can redeem the token for his time or you could just hold it as a sign of “I was there first”. If he becomes this famous designer, you could cash in on that later.

Outside of crypto there are other experiments that have been run. Like Mike Merrill, this guy who literally securitized himself so shareholders can vote on life decisions that he makes. Also Spencer Dinwiddie (a star player on the Brooklyn Nets), who is issuing a bond based on his future NBA earnings and sponsorships, kind of similar to [David] Bowie Bonds. It’s a very explicit financialization of a person.

Blake: There’s something to explore there. A lot of these creators need a way to finance their dreams and are taking massive risk when starting out. People could invest to help a creator make something new. Or a creator could auction off the future ad revenue from a YouTube video that’s already out.

Fred: I wonder if there are two angles to use crypto in “financing” for creators and communities. One is the traditional financing angle: people need money to create things. The second is that it’s actually all about distribution. Creators or communities often don’t need the money. For example, how much does it cost for Charli D’Amelio, the most popular western TikTok star, to create a video? Next to nothing. What all creators and communities need desperately, however, is a fanbase or community. And if you sell a piece of yourself or your future, that could help create a community around you. Your fans/users become your distribution. Fame is also a self-reinforcing phenomenon. Just like any network effect, getting over that initial chicken and egg hurdle, especially in an algorithmic feed world, is huge.

I’m curious if you guys have intuitions around how much creators using crypto will skew towards people wanting to raise money vs it being a distribution strategy?

Jesse: My intuition is it’s more likely to start with distribution than crowdfunding. There are tools to fund future development or work available to most creators. If you’re a musician, you go to a record label and I’m sure there’s the equivalent in the influencer world. Competing head to head with existing services is not the way to go. The new cool thing that you can do is like align your community with your success through some distribution of value that’s not necessarily in return for direct financial contribution. This is aligned with the recent reddit experiment, where they are giving tokens away to community members rather than raising money.

Blake: The financing side of this space is still pretty broken. Almost all of these people take on incredible amounts of risk. Or working jobs then quitting once they get to a certain point. Or just start really young and so they’re just like, “OK, I’m going to do this while in high school, and if it works then I stick with it, if not, I’ll just do other stuff”.

I tend to agree though that using it as a mechanism to grow your audience that will hopefully go out and promote you is really valuable. There’s an angle where they might already have a thousand diehard fans and it’s a matter of: “how do I make sure you get some upside or for promoting me and encouraging everyone to watch this? How do we just make sure we’re more aligned?”. This is something that’s definitely worth exploring.

Jesse: I wonder if it’s a question of distribution scale. If you have a lot of distribution, crowdfunding is the way to go. Whereas if you’re trying to build distribution, you don’t start with crowdfunding. You find some other means to finance yourself and then just build your community by distributing some economic incentives.

Fred: Right. There is “reflexive” value in communities around people or ideas: the more people interested in something, the higher the value of the thing (creator, idea, community, etc). Bitcoin is an extreme example but it applies to anything.

There’s a guy named Dan Robinson on our team who asked me if I’ve read a SciFi book called “The Unincorporated Man”. I said “no, is it worth reading?” And his response was, “Eh, it’s fun but since so few people have read it it is low ROI” And I was like, “Oh, that’s really interesting. So books are reflexive? The more people read something the more value it has?” And he said, “Right, true of any book. Part of the value is social signaling. Part of it is creating a common cultural touchstone. The Bible and other religious or cult works are massively reflexive. The money of books. For Dummies books are maximally utilitarian.” So Jesse, to your point, scale breeds further scale. Fame gives the opportunity for bigger fame. Kim Kardashian proved and mastered this.

Blake: I like that, that’s cool.

Jesse: Yeah, that’s trippy. And weird. It makes sense, though. Think about how many people actually tweet the photos of the books they’re reading as a way to virtue signal.

Fred: How will creator or community crypto tokens start? From existing creators/personalities/ communities that choose to tokenize an already large user base or new upstarts? And how will they evolve?

Blake: reddit is fascinating because they’re a large existing platform trying to tokenize. But my hunch is that it will be more early/new things. So much of the status and value comes from this social signaling that you were either early or you’re the biggest supporter of that person. From that angle there’s less value for someone who already has 20 million subscribers.

Jesse: I want to say it’ll be new creators. If the creators are already making money, they have little incentive to switch to a new system. Innovator’s dilemma. Maybe like the perfect middle ground is middle class creators that are just getting by and are willing to try new things. 

This gets to another question you raised Fred: how could crypto change the dynamics between communities or creators and platforms?

What it unlocks is the potential for that community to have autonomy from the platform. In the context of a single creator, they could have some existing leader board that is tied to an existing platform like Twitch. And then, they could bootstrap their community token off of that leaderboard. And then now there’s this cross platform asset that could work across platforms. You can start to imbue this community token with all kinds of value that the original platform didn’t offer as part of their product experience. You can imagine the same working for bootstrapping tokenized communities off platforms with built in reputation systems like reddit.

Fred: So a community can uproot itself from its platform and create its own digital nation. It’s a way for creators to shift power from current platforms and own their distribution/communities more directly.

Blake: Yeah, there’s probably low hanging fruit within this world. If you can slot into the donation platform for a platform tool like Steam Labs (the donation tool Twitch steamers use) then you can use it to start tokenizing these communities. Imagine if you could take those community tokens elsewhere, whether it’s on YouTube or Twitter or other platforms.

Jesse: What’s nice about Twitch and Stream Labs is they give creators easy templates to monetize their audience. I’ve met a few teams that pitched the idea of helping creators tokenize. And the question I always drill them on is: what are the templates that you’re giving creators to make that can be useful across platforms? They probably need a template to get started – they are busy doing other things. Although over time there will probably be innovation on monetization that comes from creators, too.

Fred: What types of things might work early on? Jesse, I like your intuition that the early uses cases look like a toy vs being extremely serious/financial. Two main reasons: first, if you go straight to a hardcore tokenization of somebody’s income stream that requires a high level of trust. Questions come up like: who’s auditing the income stream? Whereas with toy use cases, people are comfortable messing around with them and then before you know it, they transition to serious. We probably won’t know what token models will work at the beginning. People will throw spaghetti at the wall and see what sticks, whether it’s on the community side or on the creator side. Second, toy use cases probably have fewer legal issues. Does that sound right to you? If so, what are some of the early experiments that are worth running? 

Jesse: Having a toy is a mental crutch to help people get comfortable with the idea of digital ownership or an economic stake in a creator’s work. And I think once that mental model is established, you can expand. You can tokenize physical products, create markets around them and let people experience ownership as a keystone of the interactive experience with the creator. And then I imagine there’s lots of other interesting things that could be tried. Like voting on what the creator should do, i.e. what game the creator should play next.

Blake: I think staking money on creators in novel ways can be big. For example: “if you win 10 games in a row, you automatically release the fan’s donation”, or helping them choose thumbnails for their social media and gradually building an “advisory board” of superfans. It could even turn into superfans working for these creators and communities.

Fred: Blake, this makes me think of the last category of business models for creators you mentioned: using their platform to start a company. For example, Nadeshot (former Call of Duty pro who started eSports team 100 Thieves). What if these creators could get their communities to crowdfund new companies or products? This happened in crypto with the Ethereum crowdsale in rallying around Vitalik as a creator. Kylie Jenner turned her Instagram follower base into a billion dollar business with Kylie Cosmetics. While building an independent business to monetize is uncommon today, I can’t help but wonder if that’s the one that generates a lot of value and becomes more common tomorrow.

Blake: Yeah, I think the biggest creators will evolve into building their own things. The one weird thing is these people aren’t perhaps naturally business savvy. And so, like in Kylie’s case, you have to make sure that there’s someone really smart behind the scenes who’s running it. There’s a lot to explore here. I’m sure if Nadeshot could have gotten money from his fans he would have loved that. The investors would have loved that too. Let’s all be aligned. It’s a really cool concept.

Jesse: Do you think the concepts of digital scarcity and ownership are important in the creator/gaming worlds? Are they understood?

Blake: It’s definitely understood in the context of gaming with virtual skins. I think crypto going mainstream likely looks closer to a sticker or something like that vs. “you’re buying a token”. Crypto gets to the real critical mass when they don’t even necessarily know that they’re interacting with it.

Fred: Right. One tailwind: mainstream audiences seem to better understand financial mechanics a lot more today than even 5 years ago. That probably helps adoption. I can’t help but think about what’s happening in Animal Crossing. Even though the economy is closed and kind of comical, two weeks ago there was a change in interest rates on turnips (yes, turnips) by the virtual central bank in the game that produced a massive economic crisis.

It seems like there are three trends happening here. First, the fact that a casual game like Animal Crossing has these financial gameplay dynamics suggests that people’s understanding of financialization has gone up a lot in the last couple of years. If you look at Robinhood activity among millennials and Gen Z’s, or you look at the Google searches for day trading, it’s a parabolic chart. Second, as we discussed before, if anything becomes big enough (like art), it will get financialized. And finally, technology, especially crypto, is making it easier to financialize anything. So it feels like there’s a convergence of a couple of different forces here that are all related.

Let’s get back to future predictions.What will the first creator or community + crypto success look like? And secondly, let’s say we go 30 years into the future. What crazy thing will come out of this that seems impossible today?

Blake: Getting a token that shows you found someone early. I have a lot of conviction that the social status of being able to prove that you were an early supporter will catch on.

Looking 50 years in the future and seeing the crazy side of this, I think we will eventually choose people to make famous. People will auction off their coins and people will go in on that person to become famous. Someone super influential might buy in and cosign that person. The person could end up becoming the biggest star in the world because everyone is able to buy a piece. It’s like a human as Bitcoin.

Jesse: It’s funny – that’s already happened in crypto with Sergey Nazarov, the Chainlink CEO. Chainlink is this token that started out completely useless. But this token took on this enormous market cap and the community, mainly from 4chan, followed it and “made” the founder of Chainlink. And then he sort of worked his way into that fame and somehow Chainlink is now building actual functionality by virtue of having the money to go and build.

Fred: I find it interesting that people have this very negative gut reaction to the idea of investing in people. It can sound dystopian: you can “own someone”. I think what people are really negatively reacting to is  the inequality of opportunity as exists in society today and how this idea forces us to look directly at that. It’s less about the mechanism itself.

I say this because you guys have just painted the opposite picture: that being able to invest directly in people could allow them to do things they could never do otherwise. It’s similar to loans or venture capital in the real world. It can be predatory, but it also can enable people to do things they could never do otherwise.

Jesse: I do think we’re going to see a bunch of cool creative products that might have been on Kickstarter but end up getting launched through these dynamically priced markets. And then I think the 50 year future trend is going to be building businesses like 100 Thieves through crowdsourcing around creators or online communities. Pooling resources to build and operate the brand from scratch, completely online. Something completely user operated, where the users are both influencers and creators.

Fred: Near term I think people will start to “get credit” on the blockchain for things they do online. This could be what they do in a reddit community, in a video game, in interacting with a DeFi (decentralized finance) application on a blockchain. This is already happening today quietly: everyone who has an Ethereum wallet and interacts with a crypto app is building a history and the start of a crypto-based online identity. And then that identity can start to unlock different things: a loan, which is purely financial, or an entrance into a super secret chat room, which is purely social.

I think the far future thing that we’ll see happen is communities will begin to form like digital nation states. We’ll live in a world where physical domicile matters a lot less and digital presence matters a lot more. Empirically this trend is already happening, and I think crypto can be a game changer in enabling communities to coordinate independent of current platforms, both socially and financially.

I think we all see the fifty year potential. And then the main practical question is: what is going to work in the next five years and how do we help support that?

Jesse: 100%. I’d love to keep the conversation going. Thanks for putting it together Fred.

Blake: Thanks guys.

Written by:

Fred Ehrsam

Fred Ehrsam is co-founder and Managing Partner at Paradigm. Previously, Fred co-founded Coinbase, the largest cryptocurrency company in the US, and held the role of President from 2012 to 2017. [→]

Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors and is not made on behalf of Paradigm or its affiliates and does not necessarily reflect the opinions of Paradigm, its affiliates or individuals associated with Paradigm. The opinions reflected herein are subject 
to change without being updated.